NOTE: THIS UNOFFICIAL EXPLANATION HAS BEEN
PREPARED BY THE INFORMATION AND MEDIA RELATIONS DIVISION OF THE WTO
SECRETARIAT TO HELP THE PUBLIC UNDERSTAND THE AGRICULTURE NEGOTIATIONS.
IT IS NOT AN OFFICIAL SUMMARY OF THE TEXT.

No surprises. As before, this
draft is painstakingly built up from ideas discussed in the talks. It
reflects the latest thinking among negotiators and the chairperson,
drawing on members’ evolving positions (ie, a “bottom up” process),
including roughly 225 hours of talks since September and lengthy
separate consultations among delegations. Unsurprisingly, there are no
surprises.

What’s new this time? The
changes include: single numbers instead of ranges for most of the
tariff-reduction formula (see explanation in the chairperson’s cover
note); technical but commercially significant new texts on sensitive
products and tariff quotas; updated options for developing countries
on “special products” and the new “special safeguard mechanism”; new
provisions on “Green Box” domestic support; revised wording for food
aid and export credit; various requirements on sharing information,
including for countries to supply some specified data before the
“modalities” are agreed; and improved drafting in a number of areas.
The chairperson’s cover note spells out the issues he thinks members
should tackle when they resume talks in the week of 26 May.

That still means a lot of progress.
There has been little change in the big picture numbers. But the
objective has been to whittle down the outstanding issues to a
manageable few and to a large extent this has been achieved. The
remaining questions can then be discussed politically, and in
comparison with other subjects, particularly non-agricultural market
access (NAMA).

In that sense, a tremendous amount of progress has been made since
September, compromising on important but difficult technical
questions, clarifying the issues, refining the approach so that it is
technically and legally more appropriate, identifying answers to
questions posed by the chairperson in his earlier drafts, and sorting
out a number of flexibilities targeted at specific situations — for
over one-third of WTO members, including around 45 small and
vulnerable economies, and different groups of countries that recently
joined the WTO (the “recently-acceded members” or RAMs).

That’s why there are no major changes in the numbers in the main
reduction formulas. Since discussions on a previous draft began in
September 2007, it was clear that they would be tackled later. As it
turns out, the role of the formulas has changed somewhat.

There’s more to it than formulas.
Sorting out other issues has taken some pressure off the big numbers.
1. The formulas remain largely unchanged, but the options are already
quite narrow. Some negotiators say that the major issue in market
access for them is no longer the formula, but the selection and
treatment of sensitive products, where there has been considerable
progress. It’s highly technical — but with real commercial impact
involving important traded products.
2. The large amount of detail on flexibilities for developing
countries, small and vulnerable economies and recent new members, has
taken pressure off the main tariff reduction formula.

That said, the formulas are
still important for countries and products where the formulas will
apply, and because many flexibilities take the form of deviations from
the formulas. Overall, hard bargaining still remains, on the numbers,
tariff quotas for sensitive products, special products, safeguards,
preferences, tropical products, some disciplines for domestic support,
etc. The difference is that the options are now simpler and more
manageable.

The “modalities” would spell out how to achieve this, including
steps to be taken each year over a period.

After the “modalities” have been agreed, they would be translated
into cuts in tariffs on thousands of products, and reductions in
subsidies and support. These would be part of the final deal.

Formulas in the “modalities” would describe the basic cuts in
tariffs, support and subsidies. For domestic support and tariffs,
“tiered” formulas are used: if support or a tariff is high (ie, in a
higher tier) it will be cut more steeply. Export subsidies would be
eliminated.

Not one-size-fits-all: the basic formulas for developing
countries prescribe gentler cuts over a longer period. On top of that,
a range of flexibilities would allow countries to deviate from the
basic formulas, either totally or for some products, particularly in
market access. This is designed to take account of countries’
different vulnerabilities, the liberalization already undertaken by
new members, and a range of special circumstances for some products in
different countries.

New or revised rules and disciplines would also be in the
“modalities”: these are as important as the formulas and are part of
the deal. They include reducing the potential that permitted domestic
support could distort trade, ensuring the methods of administering
quotas do not themselves impede trade, and disciplining export
finance, exporting state trading enterprises and international food
aid so that they do not provide loopholes for export subsidies.

Highlights

Numbers in the draft tend to be in
square brackets (indicating they are still to be negotiated) and
in some cases the text offers ranges (e.g. tariffs) or
alternatives (e.g. domestic support). Terms used in this box are
explained in the longer summary.

Domestic support

Overall trade distorting domestic
support (Amber + de minimis + Blue). EU to cut by 75% or
85%; US/Japan to cut 66% or 73%; the rest to cut by 50% or by 60%.
“Downpayment” (immediate cut) of 33% for US, EU, Japan, 25% for the
rest. Bigger cuts from smaller developed countries with overall
support as a larger % of production value. Cuts made over 5 years
(developed countries) or 8 years (developing). (Unchanged)

Amber Box (AMS). Overall, EU
to cut by 70%; US/Japan to cut by 60%; the rest to cut by 45%. Bigger
cuts from some other developed countries whose AMS is larger % of
production value. Also has downpayment (square brackets removed).

Per product Amber Box support:
capped at average for notified support in 1995-2000 with some
variation for the US and others. (Essentially unchanged, but with
countries’ caps to be annexed to these “modalities”)

De minimis. Developed
countries cut to 2.5% or 2% of production. Developing countries to
make two-thirds of the cut (no cuts if mainly for
subsistence/resource-poor farmers, etc). (Applies to product-specific
and non-product specific de minimis payments)(Unchanged)

Tariffs would mainly be cut according to a
formula, which prescribes
steeper cuts on higher tariffs. This is now largely in single numbers
instead of ranges of cuts. For developed countries the cuts would rise
from 50% for tariffs below 20%, to 66–73% for tariffs above 75%,
subject to a minimum average. (For developing countries the cuts in
each tier would be two thirds of the equivalent tier for developed
countries, subject to a maximum average.)

Some products would have smaller cuts via a number of
flexibilities designed to take
into account various concerns. These include:
sensitive products (available
to all countries), the smaller cuts offset by tariff quotas allowing
more access at lower tariffs;
Special Products (for
developing countries, for specific vulnerabilities), with more
concrete options than in the previous draft.

Contingencies. Scrap or reduce
use of the old “special safeguard” (available for “tariffied”
products). Details of the new “special safeguard mechanism” for
developing countries have been revised.

Export competition

Export subsidies to be
eliminated by end of 2013.
Half of this by end of 2010.

Revised provisions on
export credit, guarantees and
insurance, international food aid (with a “safe box” for
emergencies), and
exporting state trading enterprises.

Details …

Domestic support

Background explanation:
Cutting trade-distorting domestic support would operate simultaneously
through several layers of constraints. Each category of supports would
be cut or limited:

Amber Box (the most distorting,
with direct links to prices and production, officially aggregate
measurement of support or AMS)

De minimis (Amber Box but in
relatively smaller or minimal permitted amounts defined as 5% of
production for developed countries, 10% for developing countries)

Blue Box (less distorting because of conditions attached to the
support)

Second, for each of these, there would also be some constraints on
support for individual products (“product-specific”).

Third, on top of that would be cuts in the permitted amounts of all
three combined:

“Overall trade-distorting domestic support” (OTDS)

(News reports of some countries being asked to cut their supports to
certain amounts of dollars or euros are referring only to that last
“overall” discipline.)

In these “modalities”: The cuts would be achieved by two
methods (these are cuts in permitted ceilings, which may or may not
bite into actual spending):

1. Tiered formulas. Like the tariff formula, the formulas for
the Amber Box and overall distorting support are also
expressed as “tiers” with support in the highest tier having the
steepest percentage cuts. Countries with larger support go into higher
tiers.

2. Limits (or cuts resulting in limits). For de minimis,
Blue Box and support for each product.

Overall trade-distorting domestic
support
(Amber + de minimis + Blue)

Most of this is essentially unchanged. Cuts are to be made from
figures for base a period of 1995–2000 (paragraph 1)

(Par.3)

Highest tier (above $60bn, i.e. EU), cut by 75% or 85%.
(EU’s current ceiling for 15 members is estimated at €110.3bn. Cut
would bring the ceiling down to €27.6bn)

Middle tier ($10bn–$60bn, i.e. US, Japan), cut by 66% or 73%
(US’s current ceiling is estimated at $48.2bn. Cut would bring the
ceiling down to $16.4bn or $13bn)
(Japan would make a bigger effort because its overall support ceiling
is more than 40% of the value of its agricultural production — a cut
halfway between the cuts of the top and second tiers — Par.4)

Lower tier (below $10bn. i.e. other developed countries), cut by
50% or 60%

Downpayment: 33.3% is cut from the start of the implementation period
(a “downpayment”) for the top three subsidizers (ie, EU, US and
Japan); 25% for other developed countries (Par.5)

Implementation: 5 years for
developed countries, 8 years for developing; equal annual steps
(Pars.5, 8).

Base level: the starting point
for the percentage cuts. This is needed because the concept of
“overall trade-distorting domestic support” is new, because there is a
new type of Blue Box programme, and because previously there were no
limits on Blue Box payments. When countries make no cuts, they have to
stay within the base-level amounts (except least-developed countries)
(Par.10).

The base level for developed countries = Amber Box commitment ceiling
+ non-product-specific “de minimis” (relatively minimal permitted
amount) ceiling (5% of production for developed countries, 10% for
developing) + total of product-specific de minimis ceiling (sum total
of 5% of production of each product for developed, 10% for developing)
+ actual Blue Box payment or 5% of production (if higher). (Par.1)

(Therefore, for some developed countries, the base level = Amber Box
commitment + 15% of production)

Developing countries. Those
with Amber Box commitments (ie, with ceilings higher than the minimal
“de minimis” level and therefore required to reduce the ceilings): cut
by two-thirds of the formula cut. But net food-importing countries
(Tunisia, Morocco, Jordan, Venezuela) among these would be exempt.
(Par.7) Those without Amber Box reduction commitments, would not have
to reduce overall distorting support, but would have to stay within
the base amount of support. (Pars.6, 10)

Recent new members. New
members who joined very recently, and some others with low incomes
(Saudi Arabia, FYR of Macedonia, Viet Nam; Albania, Armenia, Georgia,
Kyrgyz Rep, Moldova) would make no cuts. Others would make two-thirds
of the formula’s cut. (Par.9)

Transparency: Included in the
new text is a requirement for some countries to provide their data on
the value of production (used to calculate the overall limits) annexed
to the “modalities”. These are developed countries and those
developing countries that have to cut their overall distorting
support, ie, all countries whose Amber Box support ceilings exceed the
minimal (“de minimis”) levels and have to be reduced — net food
importing developing countries, least developed countries and some
recent new members would not be included. (Par.12)

Middle tier ($15bn–$40bn, i.e. US, Japan), cut by 60%
(US’s current ceiling is $19.1bn; down to $7.6bn after cut.)

Lower tier (below $15bn. i.e. all others), cut by 45%

Japan would make the top tier cut, effectively putting it in the top
tier. Other developed countries whose Amber Box support is more than
40% of the value of their agricultural production would also make a
bigger cut, i.e. a cut halfway between the cut of their tier and the
tier above. (Par.14) (Also unchanged)

Downpayment. The top three
subsidizers (ie, EU, US and Japan) to cut 25% from the start. All
other cuts in equal annual steps over five years (eight for developing
countries). (Par.15) (Unchanged except square brackets removed from
25%.)

Various developing countries
would make two-thirds of the formula cut or be exempt cuts, and would
continue to be allowed some types of support. (Pars. 16–18) (Minor
changes in wording.)

Recent new members. New
members who joined very recently, and some others with low incomes
(Saudi Arabia, FYR of Macedonia, Viet Nam; Albania, Armenia, Georgia,
Kyrgyz Rep, Moldova) would make no cuts. Some would be allowed to
exclude investment subsidies from Amber Box calculations. Some would
make two-thirds of the formula cut. (Par.19)

Inflation can have an effect
on calculations of support, which in turn could run foul of committed
limits. The text says allowance for this under the Agriculture
Agreement will continue in effect. A sentence adds this will include
consideration for developing countries facing sharp rises in food
prices (new). (Par.20)

Amber Box support per product
would be limited to no more than the amounts actually provided on
average in 1995–2000 (with some variation for developing countries).
The calculation for the US would be based on total Amber Box support
for specific products per year for that period but shared among
products according to the average share over the years 1995–2004. Some
additional adjustments would be made for special situations.
Developing countries would be allowed to choose from three options.
(Pars.21–29) (Largely unchanged. New: developed countries to annex
data on their limits-per-product to the modalities.)

De minimis

(Amber Box supports in small, minimal or negligible amounts, currently
limited to 5% of production in developed countries, 10% in developing)

Developed countries: cut by 50% or 60% (i.e. cap at 2.5% or 2% of the
value of production, from the current 5%) (Par.30) (Unchanged)

Developing countries with Amber Box commitments: cut two-thirds of the
above cuts (from the current 10% of the value of production). Totally
exempt: if almost all is for “subsistence and resource-poor farmers”
or the country is a net food importer. (Pars.31–32) (Unchanged)

Recent new members: no cuts for those who joined very recently and
some with low incomes (Saudi Arabia, FYR of Macedonia, Viet Nam;
Albania, Armenia, Georgia, Kyrgyz Rep, Moldova). Others make at least
one-third of the standard cut. (Par.33) (Unchanged)

Blue Box

New type. (The present Blue
Box is essentially Amber Box support but with production limits so
that over-production is curbed.) The Agriculture Agreement would be
amended to add a new type of Blue Box based on payments that do not
require production but are based on a fixed amount of production in
the past (eg, for US “countercyclical payments”). (Par.35)

A country would have to decide which type of Blue Box to use. It would
normally only use one type for all products and this would not change.
Any exceptions would have to be approved now (when “schedules” of
commitments are agreed). In any case, any product can only receive one
type of Blue Box support. (Par. 36–37)

Limit (unchanged): 2.5% of the
value of production during the base period (Par.38). More is allowed
for some countries (such as Norway) that now use a lot of Blue
Box support as they reform their support by shifting away from the
more distorting Amber Box — if the Blue Box support is more than 40%
of trade-distorting support, it is cut by the same percentage as the
Amber Box cut, in up to two years (Par 39)(square brackets removed on
two years). Developing countries: 5% of the value of
production, with flexibility for some special circumstances.
(Pars.48–50) Recent new members: 5% of the value of production,
with some flexibility over the base period. (Par.51)

Other criteria: The 2008 texts
spells out in greater detail how limits would also be imposed on Blue
Box support for each product. Generally the limits are the
average spent in 1995–2000, with adjustments if there are gaps in
spending in some years. For the US, the limits are 10% or 20% more
than estimates of maximums under the 2002 Farm Bill. New US data are
now in Annex A. Various provisions deal with a range of situations,
including the possibility of going above Blue Box limits per product
if an equivalent reduction is made in the Amber Box limits for that
product, and for enabling Blue Box payments on products that did not
previously receive them. For developing countries the combined Blue
Box limit on these “new” products has been raised in this text to 25%
of the overall Blue Box limit (new). (Pars.40–50)

Green Box

(Ie, support that does not distort production or prices or causes
minimal distortion.) The Agriculture Agreement’s provisions (its Annex
2) would be amended to allow more development programmes by developing
countries and to tighten criteria for developed countries (e.g. on
decoupled income support). This revised text offers new provisions
dealing with the question of “fixed and unchanging” base periods for
income support (including the notion that farmers expectations or
decisions must not be altered by any exceptional changes), structural
adjustment and regional assistance programmes; and possible revision
of conditions for developing countries’ food stockpiling purchases
from low-income farmers or those with few resources, at prices that
are higher than the market. (Annex B) (Some modification) The
chairperson thinks negotiators ought to try conclude this soon (cover
note)

(Some members have argued that in order to ensure Green Box programmes
are genuinely “green” (i.e. non-distorting), transparency, monitoring
and surveillance should be enhanced. This would be part of a general
revision of monitoring and surveillance — Annex M, revised)

Cotton

Trade-distorting domestic support for cotton would be cut by more than
for the rest of the sector. The text includes a formula reflecting
this, based on a formula proposed by the “Cotton Four” African
countries in 2006. (Par.54) (Unchanged)

Mathematically, the formula says that if a country’s general Amber Box
cut is “Rg”, then,
the percentage cut for cotton = Rg + ((100-Rg)x100)/3xRg

Eg, if the US Amber Box reduction is 60%, as above, then its cut in
Amber Box support for cotton would be 82.2% i.e. (60+(40x100/180))%.
That is unchanged and remains unsettled.

Blue Box support for cotton would be capped at one-third of what would
be the normal limit (Par.55). (Unchanged)

Developing countries with Amber and Blue Box commitments would make
two-thirds of developed country cuts for cotton and over a longer time
period (Pars.57 and 58). (Unchanged)

Market access

Tariff reduction formula: the bottom
line

The tiered reduction formula is the main approach for cutting
tariffs (from ceilings legally bound in the WTO). Products are
categorized by the height of the starting bound tariff (Year 0 in the
charts below). Products in higher tiers have steeper cuts. Eventually
a single percentage cut will be negotiated for use in each tier: the
present text replaces most ranges of possibilities (eg, 48%–52% in the
bottom tier for developed countries) with single numbers that are
roughly midpoints in the previous ranges (for details see charts on
next page).

For developing countries, the standard cuts in each tier would be
two-thirds of the equivalent cut for developed countries. The numbers
in the formulas are among the narrower set of more political issues
that will probably only be settled later when compared with
non-agricultural market access and possibly other issues, and the
negotiations go to a more political level.

However, the general tiered formula will not apply to all products.
Some flexibility is spelt out for some products (details below),
including those that are politically “sensitive” and those that are
“special” because they affect food security, livelihood security and
rural development in poorer countries.

Developing countries have more exceptions, particularly the smallest
and most vulnerable among them — the text lists around 45 small and
vulnerable economies, meaning that over half of developing
countries that are not least-developed would be eligible for even
smaller reductions (Annex I). Least-developed countries and some
recent new members will not have to make any cuts (Par.138).

The charts (next page) indicate the scale of cuts for the two
groups of countries. The purpose is only to illustrate how the formula
works and to allow developed and developing countries’ cuts to be
compared. The solid lines compare developed and developing countries’
cuts from starting tariffs that are mid-points in the developed
countries’ lower three tiers and arbitrarily 100% in their top tier.
The dotted lines show cuts from mid-tier or 150% in the top tier, for
developing countries.

For the top tiers, the charts show the maximum and minimum cuts. For
the other tiers, the chairperson’s single suggested cuts (no longer in
square brackets) are used.

Note that the special treatment for developing countries can
sometimes work doubly. Not only are the cuts in each tier gentler, but
many products (such as those with a 100% tariff) fall into a lower
tier in the formula (top tier for developed, upper middle tier for
developing), meaning that the cut is even gentler.

The only products that are in the same tier for both developed and
developing countries are those with tariffs above 130% (top tier),
those with tariffs of 30%–50% (lower middle tier), and those with
tariffs below 20% (bottom tier).

• boxes:
categories of domestic support• Amber Box: domestic support considered to distort
production and trade, eg, by supporting prices or being
directly related to production quantities, and therefore
subject to reduction commitments. Officially, “aggregate
measurement of support” (AMS)
• de minimis: Amber Box supports in small, minimal
or negligible permitted amounts (currently limited to 5%
of the value of production in developed countries, 10% in
developing). To simplify this guide to the “modalities”,
de minimis is treated separately from the Amber box• Blue Box: Amber Box types of support, but with
constraints on production or other conditions designed to
reduce the distortion. Currently not limited
• Green Box: domestic supports considered not to support
trade or to cause minimal distortion and therefore
permitted with no limits
• distortion: when prices are higher or lower than normal,
and when quantities produced, bought, and sold are also
higher or lower than normal — ie, than the levels that
would usually exist in a competitive market
• tiered formula: a formula where higher tariffs have
steeper cuts than lower tariffs — products with higher
tariffs are put in a higher category or tier, which has a
steeper cut than lower tiers. Also used for cutting
domestic support• tariff quota: when quantities inside a quota are charged
lower import duty rates, than those outside (which can be
high). (The reductions from the formulas apply to
out-of-quota tariffs.)• Tariff line: a product as defined in lists of
tariff rates. Products can be sub-divided, the level of
detail reflected in the number of digits in the Harmonized
System (HS) code use to identify the product.• export competition: term used in these negotiations to
cover export subsidies and the “parallel” issues, which
could provide loopholes for governments’ export subsidies
— export finance (credit, guarantees and insurance),
exporting state trading enterprises, and international
food aid

What is
this paper? This is NOT a “proposal” from the
New Zealand ambassador (or from “the WTO”) in the sense
that we would normally understand the word “proposal”. In
other words, it is NOT his opinion of what would be
“good” for world agricultural trade.

Rather, it is an assessment drawn from WTO member
governments’ positions. It is the negotiations’
chairperson’s judgement of what they might be able to
agree — based on what they have proposed and debated in
over seven years of negotiations and their responses to
his previous papers. He has stressed that this is not
final. It puts the possible areas of agreement on paper so
that members can react and further revise the draft. So
this paper kicks off another intensive series of meetings
and comment.

WHERE AND WHO?

How are these
issues being negotiated?

In this phase of
the negotiations, the hard talking on agriculture has
taken place in meetings of 36–37 representative
delegations, a more manageable size than sessions of the
full membership. The process is controlled by meetings of
the full membership and is chaired by the talks’
chairperson, Ambassador Crawford Falconer of New Zealand.
The 36–37 meet in Room E at the WTO and the sessions are
sometimes called “Room E” meetings. All coalitions are
represented to ensure the talks are inclusive and
transparent.

Subject to a minimum average cut of 54%, taking into
account deviations from the formula — both larger and smaller cuts
than the formula. If the result is a smaller average, then
additional reductions would be made. (Pars.61-62)

Latest: developing countries
Two thirds of developed countries’ cuts in each tier

Plus a maximum average cut of 36%. If the average is more
than that, the cut by the formula can be reduced. (Par.63–64)

Flexibilities in brief:
deviations and exemptions from the bottom line

For developing countries these could be quite extensive, and in some
cases the bottom-line formula could be the exception rather than the
rule, or it could be discarded completely:

Sensitive products (available for all) would have smaller cuts than
from the formula, but with new quotas allowing imports at lower
tariffs (“tariff quotas”) to provide some access to the market.
Deviations would be one-third, half or two-thirds of the cut, with the
tariff quota adjusted in relation to the deviation. (More details
below)

Maximum average cut (developing countries) — 36%. Developing
countries could reduce the formula’s cuts in order to stay within that
average maximum. New: the average would now take account of all
deviations from the formula, including the smaller cuts made on
sensitive products. (Par. 64)

Smaller maximum average cut without using the formula at all (45
small and vulnerable economies) — 24% achieved by designating products
as “special” (see below) if they deviate from the formula including
exemption from cuts, and no need to use indicators. (Pars.65, 119 and
Annex I) (Modified)

… or smaller cuts by 10 percentage points (45 small and vulnerable
economies, those with “ceiling binding”, those with “low homogeneous
bindings”). (Pars.65, 119 and Annex I) (Modified)

Smaller than formula cuts (other recent new members) — cuts can be
reduced by up to 10% in the two top bands and 5% in the two bottom
bands, starting one year after their current membership deals have
been implemented fully and perhaps with two additional years to
implement the new agreement. (Pars.66–71)

Would not have to make any tariff cuts: least-developed countries,
“very recent” new members (Saudi Arabia, FYR of Macedonia, Viet Nam),
small low-income recent new members (Albania, Armenia, Georgia, Kyrgyz
Rep, Moldova). (Pars.67–70, 145) (Revised)

Special products (developing countries) — The revised text
reformulates the original draft. It incorporates two views of special
products within a single structure. Up to 20% of products could be
declared “special”, or no more than 8%. If up to 20% can be special,
then 8% would be a minimum and would not have to be supported by
indicators for food and livelihood security or rural development
(indicators in Annex F). One option would allow 40% of these (ie, 8%
of all products, if 20% of them are “special”), to be exempt any
tariff cuts. Another would not allow any exemption. For special
products that do have tariff cuts, the options would be simpler than
in the previous draft — they would average 15% and be between 12% and
20%. (Pars.118–120) (See above for small and vulnerable economies.
Recent new members have different conditions.) This is one of two
areas where the chairperson says members “remain quite divergent”
(cover note)

Tariff cap

No mention. However, developed countries with more than 4% of products
whose tariffs end up at levels above 100% have to provide a larger
increase in tariff quotas than they would normally — by 0.5 percentage
points more than normal (some countries ending up with a 1% increase
on some products if they also use an additional flexibility) (Par.75,
last sentence). (Modified) The chairperson says the whole paragraph is
now “relatively clean … even though it remains contested” (cover note)

(In his 17 July 2007 press conference, Amb.Falconer described this as
an “incentive” for countries to keep their tariffs within a certain
limit. If they decide to go above the limit, then they “pay” for that
through larger market access. He also said that if he had drafted a
paper with a fixed limit or cap on tariffs, then the proposal for the
top tier of tariffs would also have been different.)

Sensitive products (all countries)

What and how many? These are sensitive essentially for political
reasons — smaller cuts than the formula, can be made by all members.
For DEVELOPED countries 4% or 6% of products could be “sensitive” (or
two percentage points more if more than 30% of products fall into the
top tier of the formula). (Par.71)

What tariff cut? the tariff cut would deviate from the formula cut by
one-third, half or two-thirds of the formula cut. (Par.73)

For developing countries, one-third more (5.3% or 8%) of products
(Par.72). The deviation would be the same as for developed countries.
(Par.73)

The payment — some more market access, via a “tariff quota” (where
quantities inside the quota are charged lower or no duty. The
out-of-quota tariff is the normal rate determined by the reduction
formula).

In return for being allowed a smaller tariff cut, developed countries
have to allow at least some quantities into their markets at a lower
tariff (inside the tariff quota, which expands if a quota already
exists). This new “access opportunity” would be 4% or 6% of domestic
consumption if the full two-thirds deviation is applied, half a
percentage point less if only half the cut is made, or one percentage
point less if the deviation is the smaller one-third. (Par.74)

The text allows countries more sensitive products (by 2 percentage
points, ie, 6% or 8% of products) if they have a large number of
products (more than 30% of products) in the top band of the
tariff-cutting formula. For those additional products they would have
to provide additional access of 0.5% of domestic consumption to their
markets.

The text also calls for extra “payment” if countries end up with more
than 4% of products with tariffs of over 100%. They would have to
provide an additional 0.5% of domestic consumption to each of the
tariff quotas on their sensitive products (see “tariff cap” above).

But they can provide less access if normal imports are comparatively
large. The quota expansions have to be made available to all members
on equal terms (“most-favoured-nation”). (Pars.74–76, 78) (Modified)

For developing countries the quota expansion is two-thirds of the
amounts for developed countries, and domestic consumption (see below)
does not include subsistence farmers’ consumption of their own
produce. Developing countries would also have the option of specifying
sensitive products without providing tariff quota access: they would
make the full tariff cut but over period three years longer than
normal, or make a cut that is one quarter of the normal cut but a
period that is two-years shorter than normal, and for fewer products
(two thirds of the normal number) (new). (Par.77)

Complexity — domestic consumption. Behind these broad principles lie
some highly complex questions. A considerable amount of progress has
been made since the previous draft in trying to resolve different
positions on these.

A major question is the extent of disaggregation for identifying
“sensitive products” and for the tariff quotas. Must a sensitive
product be a broad category such as “cheese”? Or can it be “hard
cheese”, or even more detailed such as “cheddar cheese”? (“Partial
designation” is the term used when countries consider subcategories or
parts of categories to be sensitive products.)

But when products identified as “sensitive” are defined at a detailed
or disaggregated level, this creates problems for what happens to
those products. The more detailed the products, the greater the
problems. There are two reasons for this. First, domestic consumption
is going to be the yardstick for new or expanded tariff quotas, but
data are not usually available for narrow categories of products such
as cheddar cheese or wheat flour. Therefore consumption has to be
estimated using “proxies” based on trade figures for the more detailed
products — a subject of divergent opinions. Second, subcategories of
products can be substitutes (which means they can compete with each
other), so the distinctions are not always clear-cut.

The latest text includes the result of intensive and highly technical
consultations. It describes how domestic consumption should be
estimated when sensitive products are identified at high levels of
detail.

The method starts out by listing products that members have said could
potentially be declared “sensitive” (template in Attachment A). The
list defines
broad product categories by specifying the more detailed
products each category includes (identified at the 6-digit coding
level of the World Customs Organization’s harmonized system — HS6).
All categories have at least some “core” products, ie, raw or basic
traded goods. Non-core products are split between those that have seen
a lower amount of processing, and those that are highly processed.

For example the product category “wheat” comprises 28 products
identified as 6-digit codes (HS6). These include two types of wheat in
the form of basic grain as “core” products, several products that have
undergone a stage of processing, such as wheat flour, and finally some
highly processed products such as pasta and bread.

The method then spells out how to
calculate domesticconsumption for
each broad category, using available data (template in Attachment B).
Finally (template in Attachment D), it prescribes how to
estimate the
consumption of products identified at a more detailed level, first at
the 6-digit coding level (HS6), and then at a more detailed level such
as 8-digit (HS8). Each detailed product’s consumption is a percentage
of the broad category’s consumption, the percentages based on the
product’s share of trade in the broad category, but adjusted to ensure
that normally the “core” products — which are usually the most heavily
traded — have 90% or more of the category’s consumption.

(The HS6 products’ consumption figures are assumed to be the same
percentages of the product categories’ consumption for all members,
but for HS8 products, depend on the shares of imports in each country.
Note that under the Harmonized System, the HS6 codes are the same for
all countries, but beyond that for HS7, HS8, etc, the codes vary from
country to country.)

These estimates would be used to
determine quota sizes when the more
detailed products are declared sensitive. Normally, the size of the
tariff quota would depend on the estimated consumption of the
sensitive products within the same broad product category. And
normally, this would have to be a single tariff quota. In a few cases
(no more than three product categories), a country could set two
tariff quotas within a single category.

Other disciplines, together with some flexibilities, are included to
prevent the estimates leading to quotas that are too small — including
a minimum quota size (“floor”) to cover cases where trade figures used
(as “proxies”) to estimate domestic consumption are exceptionally low.
(A summary of how this works is in the diagram on the next page. See
Annex C and Attachment Ai of paper and additional attachments for
details.) The chairperson believes this can be “tidied up” quickly
leaving “one remaining clear-cut option” (chair note)

“Tariff escalation” (the problem of higher tariffs on processed
products than on raw materials, which hinders processing for export in
the country producing the raw materials). Where the escalated
processed product has a tariff that is significantly above the
unprocessed product (ie, by 5 percentage points or more), it would
take the cut of the tier above or if it is already in the top tier, 6
percentage points added to the cut of the top tier. Sensitive products
would be exempt, and the tropical products cut would override the
escalation cut if it is bigger. (Pars.79–85 and Annex D)

Commodities: This aims to strengthen provisions on tariff escalation
for developing countries depending on commodity exports. It includes
possibilities for eliminating non-tariff barriers and for price
stabilization. (Pars.86–97) (Some modifications)

Simplifying tariffs. The revised text includes the option for all
tariffs to end up as simple ad valorem (percentages of the price) but
in any case no tariffs would be made more complex than they are
already. This removes the previous middle-ground alternative
simplifying 90% of tariffs. In any case, more complex tariffs have to
be simplified, either as ad valorem or specific duties (dollars, euros
etc, per tonne, litre, etc). The text includes more technical issues
such as the method of converting tariffs to their ad valorem
equivalents. (Par.98–102)

Tariff quotas (where a higher tariff is charged on quantities outside
the quota, and a lower or zero duty for quantities inside. The
out-of-quota tariff is the normal rate determined by the reduction
formula). The revised text includes provisions on bound in-quota
tariffs, how much they should be cut, whether new quotas should have
zero in-quota duties, and different treatment between products (ie,
“tariff lines”) that are “sensitive” and those that are not.
Provisions on tariff quota administration refer to the WTO Import
Licensing Agreement with additional criteria. (Pars.103–114) The
revised text modifies the proposed treatment of cases where quotas are
not filled (Par.111–112) and modifies proposals for monitoring tariff
quotas and improving access to the market if imports are persistently
less than the quota (“underfill”). (Annex E) The chairperson thinks
further progress can be made from the structure on in-quota tariffs
(cover note)

Tropical and diversification products and long-standing preferences:
the provisions are designed to accelerate liberalization of tropical
products — alternative proposals suggest imports could be duty-free if
the present tariff is no more than 25% or 10%, otherwise having a
range of cuts, depending on the proposal. Slower liberalization for
products with long-standing preferences — alternative proposals
suggest a 10-year delay in starting tariff cuts or simply two years
longer to make the cuts. Where the two overlap, the tropical products
(and tariff escalation) provisions could override those of
preferences, except for some products (still to be identified). Recent
work has focused on negotiating the lists of products in each
category, but the discussion continues and therefore the lists remain
unchanged. (Pars.134–137, products listed in Annexes G and H) “This is
the most obvious instance where the text as is will inevitably have to
be revised in light of ongoing real negotiation” (cover note).

Safeguards

1. Special safeguard (SSG). Eliminate or reduce the number of products
eligible for the current “special safeguard” to 1.5% of products (the
1.5% is new). (This safeguard can be used on products whose variable
duties, discretionary import licensing, quotas or import bans were
converted to tariffs in the Uruguay Round, and many developing
countries gave up their right to use it because they chose to set
ceiling bindings instead of to “tariffy”.) (Pars.119–122)

2. (the new) special safeguard mechanism (SSM). This section has been
extensively re-written, with some square brackets removed, but the
broad principles remain. Developing countries would be able to
temporarily protect their producers by applying the new special
safeguard mechanism. The text proposes options for formulas for the
mechanism, and includes possible disciplines to avoid the safeguard
being triggered frequently and frivolously, and disciplines the
increase in tariffs so that present bound ceilings (or “Pre-Doha Round
bindings”) are not exceeded. (Pars.121–133) This is one of two areas
where the chairperson says members “remain quite divergent” (cover
note).

Least-developed countries

Least-developed countries would not have to reduce tariffs. How this
and other provisions would work is now simply described with a single
sentence: “The provisions of the revised NAMA text are applicable here
too.” (Par.138)

Export competition

Export subsidies

Eliminate by the end of 2013 (developed countries), with half cut by
the end of 2010, and options offered for cutting the subsidized
quantities in the period. The elimination date for developing
countries would be 2016. (Pars.145–147) (Unchanged)

Export credits, export credit guarantees or insurance programmes

This is an area where the chairperson says not much remains to be done
(cover note). These would be disciplined to avoid hidden subsidies and
ensure the programmes operate on commercial terms. Proposed conditions
include limiting the repayment period to 180 days, ensuring programmes
are self-financing (ie, not making losses over a period), etc. This
revision greatly simplifies the text on self-financing: instead of
listing criteria it just refers to recovering costs “to a commercially
viable standard”, over a “rolling” period of four or five years.
(Annex J) (Unchanged)

For developing countries providing credit, the 180-day maximum
repayment term would be reached in three steps over a period, probably
three years. Least-developed and net food-importing developing
countries would be normally be allowed 360–540 days to repay
(previously 360 days). Some additional flexibility in special cases
would be allowed under the supervision of the WTO Agriculture
Committee. (Annex J) (modified)

Agricultural exporting state trading enterprises

Their activities would be disciplined. A key question remains whether
monopoly power would be outlawed or just disciplined. The definition
of exporting state trading enterprises was simplified in the February
text by referring to the relevant provisions in the General Agreement
on Tariffs and Trade (Art.17). (Annex K) (Unchanged)

International food aid

This is an area where the chairperson says not much remains to be done
(cover note). As before, emergency food aid would be in a “Safe Box”
with more lenient disciplines. Emergencies would be declared or
appealed by relevant international organizations such as the UN, World
Food Programme, Red Cross, etc.

Other food aid (ie, not emergency aid) would be disciplined to prevent
the aid from displacing commercial trade, and with needs assessment,
which would be under the responsibility of a UN agency.

The text gives the recipient government priority over all food aid
operations, emphasizes needs assessment, and gives the UN the final
say when NGOs assess needs. Members’ continuing differences over
monetization (ie, selling donated products to raise funds for aid) is
reflected in options for disciplining the practice. It could be
permitted under certain conditions both in emergencies and in other
situations. (Annex L) (Modified)

Cotton

Export subsidies would be eliminated from the start of the
implementation period. (Par.151–152) (Unchanged)

Export prohibitions and restrictions

Disciplines would be tightened for introducing new export
restrictions, with increased transparency and monitoring.
(Pars.154–160) (Unchanged)

Other issues

Monitoring and surveillance

The text includes proposals for a flexible institutional structure
based on the WTO’s regular Agriculture Committee. It includes clearer
obligations on member governments to keep each other informed (through
“notification”) on what they do under the agreement. The surveillance
mechanism would be reviewed every five years. (Annex M) (Completely
new text)

(The following remain in square brackets with no other text,
indicating no narrowing of opposing views.)